A Note on Hybrid Mortgages

26 Pages Posted: 17 Sep 2004

See all articles by Brent W. Ambrose

Brent W. Ambrose

Pennsylvania State University

Michael LaCour-Little

California State University at Fullerton; Federal National Mortgage Association (Fannie Mae)

Zsuzsa R. Huszar

Central European University; National University of Singapore ; Singapore Management University

Date Written: September 3, 2004

Abstract

We extend the work of Ambrose and LaCour-Little (2001) on traditional one-year adjustable rate mortgages by analyzing the performance of 3/27 hybrid instruments. Under this contract innovation, which first appeared in the mid-1990s, note rates are fixed for three years after which they convert to a traditional one-year adjustment schedule. We find high rates of prepayment, particularly at time of initial rate adjustment, and relatively high rates of default, as would be consistent with the payment shock that often affects adjustable rate loans.

Keywords: adjustable rate mortgage, prepayment, default

JEL Classification: C52, G21

Suggested Citation

Ambrose, Brent W. and LaCour-Little, Michael and LaCour-Little, Michael and Huszar, Zsuzsa R. and Huszar, Zsuzsa R., A Note on Hybrid Mortgages (September 3, 2004). Available at SSRN: https://ssrn.com/abstract=591660 or http://dx.doi.org/10.2139/ssrn.591660

Brent W. Ambrose (Contact Author)

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-867-0066 (Phone)
814-865-6284 (Fax)

Michael LaCour-Little

California State University at Fullerton ( email )

5133 Mihaylo Hall
Fullerton, CA 92834-6848
United States
314-374-9626 (Phone)

Federal National Mortgage Association (Fannie Mae) ( email )

1100 15th St NW
Washington, DC 20005
United States
202-752-3318 (Phone)

Zsuzsa R. Huszar

Central European University ( email )

Nador utca 9
Budapest, H-1051
Hungary

National University of Singapore ( email )

Business School
15 Kent Ridge Drive
Singapore, 117592
Singapore
+65 6516 8017 (Phone)
+65 6779 2083 (Fax)

Singapore Management University ( email )

Li Ka Shing Library
70 Stamford Road
Singapore 178901, 178899
Singapore

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